What is BRRRR?
BRRRR is an acronym that stands for:
- Buy
- Rehabilitate or Repair
- Rent out
- Refinance
- Repeat
The BRRRR investing strategy is one that many real estate investors use if they’re looking for a way to earn a semi-passive income by building a portfolio of rental properties.
How to use the BRRRR strategy
This method looks the same regardless of the type of properties you want to buy. In the interests of keeping it simple, the following example doesn’t include things like lending or mortgage fees, insurance, taxes, or other potential expenses.
- Say you Buy a home for $200,000—you’ll need a down payment of around $50,000. For simplicity, let’s say you finance the down payment—a loan of about $150,000 will suffice.
- Then, use around $40,000 to Rehab the property. Your total initial investment, including down payment and costs for repairs, is approximately $90,000.
- Next, Rent the home for $2,400 per month.
- Twelve months later, have the property appraised. With the built-up equity, the appraisal should be around $320,000—the amount you’ll Refinance the property for. Say the bank offers you a loan at 75% of the appraisal. That’s $320,000 x .75 = $240,000.
- Then, use the $240,000 to pay off your original $150,000 loan. You’re left with $90,000—your initial investment.
- Finally, take that $90,000 and Repeat the process. In the meantime, you’ve got a steady cash flow from your first rental property.
This example uses a straightforward single-family home, but you can apply the BRRRR strategy to any investment property, whether they are condos, townhouses, multi-family homes, office buildings, or other properties. Simply make the purchase, fix it up, rent it out, refinance the property, and move on to your next.
BRRRR strategy case study
If you’re new to real estate investing, chances are you’ve been saving up for your first property purchase. Depending on your circumstances, saving up for the down payment can take some time. And before you even acquire your first property, you’re likely thinking about a second—and that means coming up with a down payment all over again. The ability to purchase subsequent properties without the need to save up again is the whole reason behind the BRRRR investing strategy. You won’t get rich overnight, but this is a strategy used by many investors to create a somewhat passive stream of income. BRRRR is an established medium- to long-term method of building wealth.
The bottom line
The previous example shows how simple this real estate investment strategy can be. There are several investment strategies, and finding the one that works best for your situation can depend on variables only you can know. As long as you’re smart about your investment properties and plan for the occasional hiccup, the BRRRR method can put you in the ranks of other successful BRRRR strategy investors.
